Archive · 7 Oct 2026
How American Investors Use Losses to Delay Taxes
This investing strategy tries to delay when someone has to pay taxes on investment gains.
An investor puts $100 into an account.
The manager uses short sales and borrowing to hold $130 of investments expected to rise and $30 of positions expected to fall.
Together, those positions leave the account with $100 of net exposure.
The manager sells investments that have lost value to record losses.
In a rising market, the losses may mainly come from the short positions.
The manager then buys similar securities to keep the account invested.
The account follows a chosen benchmark, but it may create more losses along the way.
Taxes are postponed, not wiped away, because gains eventually have to be realized.
Tax-aware long-short investing uses short sales and margin to create larger long and short positions than the investor’s initial contribution.
In the example, a $100 account holds $130 in long positions and $30 in short positions, leaving net exposure of $100.
The manager sells losing positions to realize losses, which in a rising market may mainly come from short positions.
Proceeds are reinvested in similar securities to maintain the account’s balance and track a chosen benchmark.
The strategy delays taxes rather than eliminating them, because gains must eventually be realized.
- Who
- Investors and the investment managers who manage their tax-aware accounts.
- What
- A long-short investing strategy that realizes losses to delay taxes while tracking a chosen benchmark.
- When
- Described as a newer strategy; no date is given.
- Where
- The article refers to American investors; no specific location is given.
- Why
- To delay tax payments by realizing investment losses, though gains must eventually be realized.
- Strategy
- Tax-aware long-short investing
- Example contribution
- $100
- Long positions
- $130
- Short positions
- $30
- Net exposure
- $100
- Tax effect
- Delays taxes but does not eliminate them